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A carbon credit is a digital tradable certificate confirming that one tonne of CO2 (or equivalent greenhouse gas) has been averted in a given year by an environmental restoration project or business.
The ultimate goal of carbon credits is to reduce the emission of greenhouse gases into the atmosphere.
Unfortunately, global emissions have continued to rise. In 2019, emissions reached a record high of 36.7 billion metric tons of CO2. In 2020, with the lockdowns and global pandemic of COVID19, emissions level dropped 7% in a single year, however in 2021, CO2 emissions jumped by the second biggest annual rise in history.
Recent years have seen a resurgence in interest for carbon offsets – and this is a good sign. It suggests public and business attention towards climate change is growing at a time when action to address it is more needed than ever.
However, offset credits are far from a perfect tool. If used carelessly, carbon offsets could slow progress on climate change and amount to little more than greenwashing. When used responsibly, they can accelerate action on climate change beyond the slow pace that has so far been set and enabled through government policies.
Using offset credits responsibly requires first a strong plan for reducing a business’s own carbon footprint. Simply buying credits instead of doing your best to reduce your business’s footprint is not defensible given the strong need for all of us to take immediate action.
Offsets will always be part of the solution, as even for the greenest of businesses it’s very difficult to be carbon neutral without the use of some type of offsetting.
In principle, carbon offset credits offer a convenient and cost-effective way to reduce the carbon footprint of a person or business. Most find it impractical to completely eliminate their carbon footprint using only internal measures, so carbon offsets offer one of the simplest ways to achieve “carbon neutrality.”
If you or your business pursues carbon neutrality, however, you should seek to use carbon offsets sparingly and only consider them at the tail end of a reduction strategy, remembering that purchasing offsets is an expense, whereas reducing emissions can be a cost saving.
Like anything, there is the good and bad. Whilst the intention of carbon credits might be good, how do they really fit into the emissions reduction landscape?
The Good
Carbon offsetting is a way for individuals and businesses to easily become carbon neutral, and to contribute to specific projects with the sole aim of positive climate impact.
When it is done properly, offsetting enables businesses and their customers to acknowledge and demonstrate their responsibility for the climate impact they have.
When done responsibly and with careful selection of the right projects, offsetting can even fund climate restoration activities that would not normally have been economically viable, creating further opportunities for emissions reduction.
Selecting projects in developing countries will in theory offer localised employment, improved health, biodiversity, human rights, land rights, and wider social benefits.
The Bad
Carbon credits are not a silver bullet and are not the answer to our climate situation. They are only one part of the larger solution.
Some will use offsetting as an excuse to continue normal business practices without making any effort to actually reduce their emissions.
Others will offset a really small portion of their carbon footprint and spend a significant amount of time and money on promoting it.
Both examples above are known as “Greenwashing”.
Additionally, all carbon credits are not made equally. 1 tonne of CO2 is 1 tonne of CO2 no matter where it is, however there are some things that you need to consider before jumping in and spending your hard-earned cash on useless credits.
In many markets, “cheap” is often synonymous with “low quality.” Within the carbon credit market there is an additional factor called Vintage. Similar to wine, the “vintage” of an offset credit can refer either to the year in which it was issued, or the year in which its associated GHG reduction occurred. The older the vintage of a carbon credit is the cheaper it can be, but this does not mean that the offset is not the same as a younger carbon credit. For example, a reforestation project has been running for 8 years and has carbon credits available to purchase:
The carbon credit equals the same offset in the same project; it's just one that is older than the other and hasn’t been sold yet. This could be related to over supply, not enough demand, or the project does not appeal to buyers.
The inverse argument – that higher prices correlate with higher quality – is not reliably true either. For some offset projects, the intrinsic cost for generating GHG reductions and the certifications process could be a lot higher than others and will therefore be more expensive for offset credits to be financially viable.
Some prefer to offset their unavoidable carbon emissions using localised climate projects. There is absolutely nothing wrong with this approach, just be aware that carbon that is released today can be anywhere across the globe in 7 days. If you have a significant amount of offsetting to do, this could be quite costly.
As an example, in Australia 1 carbon credit recently cost $55. If you are required to offset 50t Co2, that equates to $2,750 per year.
In the same example purchasing 1 carbon credit from a project in Brazil may cost $19, so to offset 50t Co2 it would cost $950 per year.
Carbon offset programs provide a necessary level of quality assurance for the credits they issue. Buyers should avoid offsets that have not been certified by an established program, such as:
It is important to understand the projects your carbon retailer is offering, ask questions about key criteria (like whether a project has other revenue streams), and stick to project types that are more likely to fulfil basic sustainability requirements
Some carbon retailers try to appeal to unaware buyers by adjusting the units of measure from metric tonnes to kilograms. Be wary of this approach.
Carbon credits are traded in Metric tonnes and the universal measurement, 1 metric tonne of CO2 equivalent, is equal to 1 carbon credit.
There are ways in which retailers can sell 0.5 or even 0.002 of a carbon credit, but this is done using blockchain technology that allows for fractionation, enabling a more accurate carbon offset. The base unit of measure, however, does not change.
If you do decide to purchase carbon credits in kilograms, first do the maths and work out what you are paying for 1 tonne of CO2. We have seen pricing in Australia range from $19 - $125 for one carbon credit when doing the conversion.
A carbon retailer should explain exactly how they offset your carbon credits. For all carbon credits to be effective they need to be retired. Holding a carbon credit on your behalf means absolutely nothing, it's like buying a concert ticket then never going to the concert. You have paid the money but haven’t benefited from it at all. For a carbon credit to be claimed as a reduction it must be retired within the formal register against the specific project the credit relates to.
Retiring a carbon credit confirms that it cannot be used again and avoids double counting.
This can be done by the carbon retailers which will have registry accounts or done through the blockchain on a publicly available ledger, where every transaction is tracked, auditable and accounted for.
